Wholesaling HUD Homes: The (Ultimate) Guide

HUD homes are a mostly untapped market for wholesale investors. Few investors look to HUD homes to find deals because of the complexity of the contracts and the government's interference with these properties.

Still, if you have the patience to overcome these obstacles, you could find yourself with a healthy profit when wholesaling HUD Homes.

• What Are HUD Homes?
• What Is Wholesaling HUD Homes?
• Can You Wholesale HUD Homes?
• Are HUD Homes Good For Wholesaling?
• How Does Wholesaling HUD Homes Work?
• What Are The Benefits Of Wholesaling HUD Homes?
• What Are The Disadvantages Of Buying A HUD Home?
• How To Use The MLS To Wholesale HUD Homes?
• How Do You Find Out If A House Is A HUD Home?
• Is It Legal To Wholesale HUD Homes?
• Is Wholesaling A HUD Home Worth It?
• Final Thoughts

What Are HUD Homes?

HUD stands for the United States Department of Housing and Urban Development. It is a government agency that is intended to help prevent and combat poverty in urban areas via safe, inclusive, affordable, and quality housing.

HUD Homes are homes that were initially purchased using an FHA (Federal Housing Administration) backed loan that has since gone into foreclosure.

When these homes are foreclosed on, the government pays the lender for the property and then puts the house up for auction “as is” (meaning they will not make repairs or amendments to sell it). These properties are usually well below market value.

The Department of Housing and Urban Development helps those who do not qualify for conventional loans still secure a home through the FHA.

HUD features the Good Neighbor Next Door program, also called GNND, to help teachers, police officers, firemen, and EMS personnel to buy HUD homes in revitalization areas for a 50% discount if they occupy the property for the next thirty-six consecutive months.

Check out this short video which answers the questions of What is HUD? What are HUD homes? And how to buy HUD Homes? 

What Is Wholesaling HUD Homes?

Wholesaling HUD homes is the process of double closing a Department of Housing and Urban Development house for a profit.

During this simultaneous closing, the wholesaler acts as an intermediary. They ultimately connect buyers with sellers.

Real estate wholesalers find properties at one price and sell those same properties to motivated cash buyers at a slightly higher rate. The wholesaler gets to keep the difference, which is their profit.

Can You Wholesale HUD Homes?

You can wholesale HUD homes, but this process is not as straightforward as wholesaling other forms of real estate.

To wholesale a HUD home, you usually have to double close or use transactional funding to wholesale a HUD home. It is not usually possible to assign a contract with HUD homes.  If you want to assign the contract, you’re going to need to get the seller’s permission since the standard HUD sales contract requires it.

Transactional funding (also known as a bridge loan, flash funding, or same-day funding) is the process of borrowing money for the short term, sometimes as little as one day, to close a deal. With transactional funding, there are two transactions happening.

First, the HUD seller sells the property to you, the wholesaler. You pay the HUD seller for the property using transactional funding. Next, you sell the home to the end buyer. The final buyer pays you for the home. Now you pay back your loan, fees, and whatever closing costs you may be responsible for. Finally, the money that is left over is your profit to keep.

Most mainstream transactional funding lenders will only approve applications that belong to LLCs or business entities; many do not approve deals where the offer is made in a personal name.

In certain situations, you can wholesale HUD properties if you are given written permission from a HUD trustee to assign the contract, and it is labeled as an extended listing.

You cannot reliably wholesale a property that is labeled as an exclusive listing. Exclusive listings are reserved only for owner-occupant homeowners.

Are HUD Homes Good For Wholesaling?

HUD homes are great for wholesaling.

HUD homes are not widely known, and because of this, they can be difficult to understand or start wholesaling. This cuts down on the competition, which makes your wholesaling real estate investing business that much more profitable.

Next, HUD homes are sold "as-is." This means that the home generally sells quickly and can make these houses especially attractive to house flippers and rehabbers.

This is great news for you, the wholesaler.

You can assign HUD properties, but only when the circumstances allow. In any wholesale real estate deal, the contract language is what determines if the contract can be assigned to another buyer.

The standard HUD Sales Contract, identified as form HUD-9548, has an assignment clause that reads as follows:

Purchaser and Seller agree that this contract shall be binding upon their respective heirs, executors, administrators, successors or assigns but is assignable only by written consent of the Seller. 

Although it comes down to the individual deal itself, for this reason, most wholesalers make their deals for HUD homes through double closings.

Also, it’s important to know that the home has to be an “Extended” listing, not an “Exclusive” listing. This is because Exclusive listings are reserved for owner-occupied buyers who agree to live in the home for at least the next 36 months after purchasing it.

Note that owner-occupants are given some priority when bidding; they are given an initial owner-occupant period at the beginning of the bidding, usually a few weeks long.

If the HUD does not receive an appropriate bid during the exclusive listing period, they will relist the home as an extended listing. Only then can investors bid on the home.

Because of this process, it can be slightly more difficult to get a HUD home at auction (though certainly possible).

Read Also: Assignment Fee - The (ULTIMATE) Guide!

How Does Wholesaling HUD Homes Work?

To wholesale a HUD home, you need to be familiar with how the properties are advertised and sold.

HUD homes are offered through the U.S. Department of Housing and Urban Development's auction system. Exclusive listings are newer and only allow people who intend to live in the property to bid. If the home is not purchased after a certain amount of time, HUD will move the listing to the "extended" list.

Wholesalers, flippers, and real estate investors, in general, are able to bid on these homes via approved real estate brokers.

You can use HUDHomeStore.gov to find a list of approved brokers and search properties. To find the complete list of available homes, visit HUD.gov.

What Are The Benefits Of Wholesaling HUD Homes?

The most obvious benefit to wholesaling HUD homes is the lack of bidder competition, and therefore, more affordable properties with better pricing.

Despite there being little competition, there is a healthy supply of HUD homes available, too, meaning that you can keep a steady pipeline of deals, even if you exclusively purchase HUD houses.

HUD homes are often distressed properties needing repairs, creating an opportunity for house flippers and BRRRR investors to add value.

What Are The Disadvantages Of Buying A HUD Home?

The disadvantages to purchasing HUD homes are all the hoops you have to jump through as an investor. You have to use a broker, sort through and sign extensive contracts, and use the inefficient government systems that are set in place.

It is more difficult to assign and flip contracts on HUD homes. This can be a bit of a headache and means that you will likely need to double close by getting a loan or fronting the cash yourself. This can get expensive because you may have to pay closing costs and the title company twice, and transactional loans traditionally have high-interest rates or fees. You also may get taxed on your income earned from the sale. Check with your CPA and tax advisor about your specific situation prior to double closing.

You'll also have to get the house at a low price to make a profit. Keep this in mind when you are calculating your maximum allowable offer also known as the MAO formula.

The homes are also sold 'as-is', so you may need to do extensive work to make them habitable and safe once again. Not all HUD homes are distressed properties, though, and agents are assigned to each home to inspect and maintain the home during its time of sitting vacant.

How To Use The MLS To Wholesale HUD Homes?

Since you already need an approved real estate broker to bid on the HUD properties, you can also ask your broker to access the multiple listing service (MLS) on your behalf to find deals.

Real estate agents and real estate brokers have access to the MLS. You will need to partner up with an agent or a broker (preferably a HUD-approved broker) to view the homes. You can also become an agent or a broker yourself to access the MLS, and in some states, you can get access to the MLS as an unlicensed assistant.

Our recommendation is to find homes on the HUD home store, and then do your more extensive research on the properties using the MLS.

How Do You Find Out If A House Is A HUD Home?

You'll know if a property is a HUD house because of where you find the data online. HUD houses are not easily found on conventional real estate apps. If you find the property for sale on HUDHomestore.com, it's obviously a HUD home.

You can find the property on sites like Realtor.com or Zillow, but you have to specifically look for it by address, as it is unlikely to pop up in search results. There aren’t usually filters on these sites for HUD Homes.

Is It Legal To Wholesale HUD Homes?

It is legal to wholesale HUD homes, but be warned, there is a lot of legwork and paperwork to get through. You will need to follow the deadlines, rules, and contracts that are set in place for the home.

It may be illegal to wholesale an “Exclusive” home. Exclusive homes are reserved only for owner-occupants who are willing to sign a contract guaranteeing that they will live in the home for the next thirty-six months after purchasing the house.

Make sure you only bid on “Extended” homes if you plan on wholesaling or flipping the house. These HUD properties are meant to be sold to real estate investors.

Is Wholesaling A HUD Home Worth It?

Whether wholesaling a HUD home is worth it or not depends on your real estate investing strategy and goals as an investor.

Weigh the pros and cons and decide if the profits are worth the extra effort. For some, real estate wholesaling HUD houses is a clear choice that is profitable and rewarding. For others, the legal contracts, timelines, and regulations make it too difficult to wholesale.

While purchasing a HUD house for personal use is an easier process with several accessible loans available (FHA loan, VA loan, traditional financing, and other lender loans are accepted), wholesaling as an investor is not as accommodating; you're going to need cash or use other people’s money (OPM).

How Long Does It Take To Wholesale A HUD Home?

After bidding on a HUD home, the winning bidder is notified in two to five days.

Then, the winning bidder is given two more days to deliver their purchase offer to the HUD asset managers.

Once this is complete, HUD will sign and return the purchase contract within seven to fourteen days.

After that, it takes approximately 45 days to officially close on the house. If the buyer wins the bid with a cash offer, the closing timeline is typically shorter.

So after placing your bid on a HUD home, assume that it will take three to ten weeks to finally close on the property.

Is It Profitable To Wholesale A HUD Home?

HUD homes are often priced exceptionally well. Many times, you’ll find HUD homes priced under market value. However, there are many hidden costs involved with wholesaling.

You will need your earnest money for the home in the form of a cashier's check. Houses with an asking price of $50,000 or less require a $500 earnest money deposit. Homes that are more than $50,000 require $500 to $2,000 of earnest money- this number is determined by HUD.

If you are wholesaling a vacant lot, your earnest money deposit (EMD) has to be at least 50% of the list price.

If your wholesale buyer backs out, you have lost your earned money because there are no escape clauses with HUD home contracts.

Next, you will need to double close. Double closing requires you to purchase the property in cash. If you do not have cash, you will need to get a transactional loan. Transactional loans, like other hard money loans, have steep interest rates and/or fees that can dig into your profits.

Remember that HUD homes can only be bid on by a HUD-approved real estate broker. This agent will require a commission, and that can tear into profits too. If you plan on flipping houses or wholesaling via HUD auctions regularly, it would be wise to get your real estate license and become an approved broker yourself.

Some HUD homes will need repairs too. Get the home inspected and come up with an educated estimated repair value, then compare that to the after repair value (ARV). Even if you are merely wholesaling the house, you need to leave room for a profit for flippers, as they are the most likely to buy the home from you.

Lastly, because you usually cannot assign HUD houses, you will have to pay the closing costs twice, title insurance, and income tax on your profits.

Related: Wholesaling Real Estate Taxes - (Ultimate) Guide For Investors

Final Thoughts

Wholesaling houses is a rewarding endeavor that can earn you a healthy profit, valuable connections, extensive real estate market experience, confidence, and so much more.

Learning how to wholesale HUD real estate is usually more complex than more traditional wholesale real estate deals. Still, the profits and lack of competition can make up for the obstacles you may encounter.

So, what are you waiting for? Get out there and start wholesaling HUD homes!